Archive / Investment Adviser (Level 2) / Life Insurance Products

nism-series-xb-charu-salary-and-growth-rate-assumptions-hlv[ INVESTMENT ADVISER (LEVEL 2) ]

In Charu's Human Life Value calculation, what is her current annual gross salary, and what annual growth rate is assumed over her 25-year working life?

[ A ]Salary = Rs. 3,00,000 p.a.; Growth = 10%

[ B ]Salary = Rs. 12,00,000 p.a.; Growth = 15%

[ C ]Salary = Rs. 6,00,000 p.a. (Rs. 50,000 pm * 12); Growth = 6% (matching inflation)[ CORRECT ]

[ D ]Salary = Rs. 4,80,000 p.a.; Growth = 0%

Takeaway

Charu's current annual salary is Rs. 6,00,000 (Rs. 50,000 pm), assumed to grow at 6% p.a. matching inflation, so option C is correct.

Derivation

Practice Case 3 specifies Charu earns Rs. 50,000 per month, annualising to Rs. 6,00,000, with her income assumed to grow at 6% p.a. — matching the general inflation assumption rather than a separately-estimated career-growth rate — while her investment corpus is assumed to earn 10% p.a. These two inputs (6% growth, 10% return) combine via the geometric formula to give the 3.7736% real discount rate used in her HLV calculation elsewhere in this set. This tests whether candidates can correctly recall and distinguish the specific input figures given for Charu's case from the differing figures used in the other case studies (Adil, Mr. Smart, Mr. Z) within the same question set.

Why the others fail

A — Salary = Rs. 3,00,000 p.a.; Growth = 10%

Rs. 3,00,000 is Adil's stated annual household living expense figure in his case, not Charu's personal annual salary.

B — Salary = Rs. 12,00,000 p.a.; Growth = 15%

Rs. 12,00,000 with a 15% growth rate is an inflated estimate that does not match the figures actually given in Charu's case.

D — Salary = Rs. 4,80,000 p.a.; Growth = 0%

Rs. 4,80,000 is Mr. Smart's annual pension figure in Case 4, not Charu's salary, and a 0% growth assumption is also inconsistent with her stated case.